Antidumping: The Third Rail of Trade Policy

N. Gregory Mankiw and Phillip L. Swagel

From Foreign Affairs, July/August 2005

Summary:  Although few U.S. politicians will admit it, antidumping policy has strayed far from its original purpose of guarding against predatory foreign firms. It is now little more than an excuse for a few powerful industries to shield themselves from competition -- at great cost to both American consumers and American business.

N. Gregory Mankiw is Professor of Economics at Harvard University and was Chair of the President's Council of Economic Advisers from May 2003 to February 2005. Phillip L. Swagel is Resident Scholar at the American Enterprise Institute and was Chief of Staff of the Council of Economic Advisers from July 2002 to February 2005.

A better way to protect industries adjusting to increased competition would be through the increased use of "safeguard tariffs," a type of trade barrier that is explicitly temporary. Increased use of safeguards may fall short of the free-trade ideal, but they cost the U.S. economy far less than do antidumping tariffs. (When tariffs are in place for more than three years, the WTO allows countries whose exports are affected by the safeguards to levy retaliatory tariffs.) Like antidumping duties, safeguards can be put in place only if the ITC determines that specific imports are hurting a domestic industry. The legal hurdle for getting a safeguard, however, is higher: unlike antidumping tariffs, which can be levied when imports merely cause material injury, safeguards are permissible only when the ITC finds that no other factor is more important than imports in causing harm to a U.S. industry. In return for the higher standard of injury with safeguards, import-competing firms in the United States do not have to show that the foreign firms took any particular actions. No consideration is given in safeguard determinations as to whether trade is fair or unfair.

The law governing safeguard tariffs also gives the president an opportunity to balance the needs of the import-competing community against the interests of the rest of the country. Although the ITC issues a recommendation, the president, according to the legislation, has the discretion to impose trade barriers as he sees fit, balancing "the short-and long-term economic and social costs" of the safeguard tariffs with "other factors related to the national economic interest of the United States." And in return for trade barriers, the domestic industry must put forward a plan for adjustment and show progress in making the adjustment -- or face the prospect of having the safeguard tariffs removed by presidential action.

Proponents of antidumping measures frequently point to the hostile reception safeguard actions have received at the WTO. A series of WTO rulings has indeed made it difficult for the ITC to find that imports hurt an American industry at least as much as any other cause. A useful negotiating goal in the Doha negotiations would be to clarify the rules governing safeguards in the WTO so as to facilitate their temporary use. Meanwhile, Washington should amend the administrative procedures to remove zeroing, rather than wait for a WTO panel to force the issue. Such a move would reduce dumping margins and avert another U.S. defeat at the WTO. Each such loss is a blow to public and congressional support for an institution that is a powerful force for improving global economic conditions and promoting international cooperation.

In international trade negotiations, a government will typically offer as "concessions" actions that are economically desirable but politically difficult at home. In a sense, each party in a trade negotiation uses the need to make concessions to the other side as an excuse to undertake actions that, absent politics, it should be willing to make on its own. The U.S. economy has benefited enormously from the liberalization it has "conceded to" in decades of trade negotiations. Any move to limit the use of antidumping policy would certainly be cast as a major concession as well. It is a concession Washington should be eager to make. Such a change would offer great benefits to both American consumers and American producers and pave the way for a return to antidumping's original purpose: ensuring rather than restricting competition.